Russian Collecting Society Bringing Major Changes to Mend Reputation From Past Corruption

Maxim Dmitriyev.
Courtesy of Maxim Dmitriyev

Maxim Dmitriyev.

Under the direction of Maxim Dmitriyev, RAO is now on track to fix its past irregularities and corrupt practices.

Russia's sole state-approved authors' rights collecting society RAO went through a rocky period a couple years ago, but is now on track to clean up its reputation that was tarnished under the previous management.

"In 2017, copyright fees collected by RAO hit an all-time high, reaching 5.05 billion rubles ($89.2 million) and exceeding the 2016 figure by 683 million rubles ($12.1 million)," RAO general director Maxim Dmitriyev tells Billboard

To a large extent, the increase was achieved thanks to a massive cleanup operation aimed at fixing irregularities and corrupt practices believed to be common in the organization under previous general director Sergei Fedotov and his team.

"I'm not even going to discuss massive irregularities and abuse of power by the previous management with Mr. Fedotov at the helm," says Dmitriyev. "We are solving those problems by filing lawsuits related to sham contracts and by revising and cancelling deals struck by the previous management that were deliberately disadvantageous for RAO."

Dmitriyev was appointed in late August 2016, just weeks after his predecessor Fedotov was accused of funneling real estate worth over 500 million rubles ($8.8 million) out of the organization and jailed.

A number of criminal cases against him are still pending. In one of them, a Moscow court ruled in November 2017 that 294 million rubles ($5.2 million) in damages is to be paid to RAO by the previous management, of which only 18.5 million ($326,900) rubles has been paid so far.

"In addition, we are trying to return money that were disguised as investments by RAO's previous management [in 2016]," says Dmitriyev. "Back then, RAO's subsidiary, SEK, transferred funds to a company called KFG Kapital, disguising it as an investment into an oil field exploration. The cash was paid to KFG on June 16 and [Fedotov] was jailed on fraud charges already on June 27.

According to Dmitriyev, a total size of RAO's fake investments in KFG Kapital is 650 million rubles ($11.5 million), but, in a positive development, KFG paid back 50 million rubles ($883,500) of it to RAO in late 2017.

RAO's new team spent the good part of last year cleaning up the mess left by the previous management and carrying out a major modernization of the collecting society.

"First, we modernized the collection system," Dmitriyev explains. "Previously, collection was done by staff employees that were paid a base salary and commission. Now we use outsourced personnel who are more motivated as they work strictly on commission."

Other changes were aimed at increasing precision and transparency of distributing collected copyright fees between rights holders.

"Previously, distribution of fees collected by RAO was often based on so called "statistic data" that were not supported by any surveys and on handwritten reports provided by unknown individuals and not even properly checked by RAO employees," says Dmitriyev. "Now the procedure is based exclusively on information on actual use of music, provided by users."

Along the same lines, the organization's internal structure and expenditures were optimized.

In January-August 2017, the most recent figure available, RAO's operational costs declined by 37 percent year-on-year to 662 million rubles ($11.7 million).

A technological upgrade was also carried out, with a b2b service called FonMix used for real-time reporting on plays of copyrighted music in public places.

"We want rights holders to understand why and for what any specific fee is to be paid to them," says Dmitriyev. He adds that payments to rights holders increased on average by 50 percent to 100 percent last year while they also received online access to all reports on collected sums payable to them.

Meanwhile, RAO's technological plans go much further than that as the organization intends to use the blockchain technology to simplify interaction between copyright holders and anyone who wants to use the results of their intellectual activity, says Dmitiyev.

To that end, a new decentralized structure, IPCHAIN, is being built in collaboration with several partners, including technology hub Skolkovo and another collecting agency, VOIS.

"IPCHAIN is the first system-building innovation project for the national intellectual property sector," says Dmitriyev. "The use of IP?HAIN will allow [rights holders and users] to implement complex chains of deals involving intellectual property rights and objects in the digital area without participation of any intermediaries."

"RAO has its own interest in the rollout of IPCHAIN. Thanks to it, we hope to completely remove the issue of reliability of reports and justification of payments to copyright holders," he adds. "I'm sure that with IPCHAIN we'll be able to build a new format for interaction of participants in the intellectual property segment and to make the intellectual property institute a key instrument in the digital economy of the future."

Still, RAO's dealings with users of copyrighted material are not always rosy, especially when it comes to large international events, such as Olympic games, soccer Confederation Cup, or even citywide celebrations.

"The organizers don't always realize that authors [of used copyrighted material] have the right to be adequately paid for the use of results of their creative work," says Dmitriyev. 

He adds, recently RAO was able to persuade the organizers of last year's Confederations Cup and this summer's 2018 FIFA World Cup -- both hosted in Russia -- to increase copyright payments to the amount of $1 million.